Daily Rate Update: February 24th-28th

Consumer Sentiment surged in late February hitting 101.0 despite the fears of the coronavirus that have caused a melt down in the major U.S. stock indexes. The Consumer Sentiment Index rose to 101.0, the second highest in the current economic expansion. The peak was 101.4 set back in March 2018. Within the report it showed that gas prices remain low while disposable income is heading higher.

Inflation remained tame in January as evidenced by the Fed’s favorite inflation gauge. The Core PCE rose 1.6% year over year while the monthly index was up 0.1%. The Fed has set a target rate range of 2% for the index but it has remained below that level for quite some time. Within the report it showed that Personal Incomes jumped while Personal Spending eased. From the manufacturing sector, the Chicago PMI rose more than expected, a good sign after the mid to late year slowdown that was seen.

The good news keeps on coming for the housing market due in part to low rates and a solid economic backdrop. The National Association of REALTORS® (NAR) reports that January Pending Home Sales surged 5.2% from December versus the 2% expected. On an annual basis, sales were up 5.7%. The NAR did say that housing inventories remain low. “This month’s solid activity – the second-highest monthly figure in over two years – is due to the good economic backdrop and exceptionally low mortgage rates,” said Lawrence Yun, NAR’s chief economist.

Mortgage rates continue to edge lower this week on fears surrounding the coronavirus. Freddie mac reports that the 30-year fixed-rate mortgage fell to 3.45% this week from 3.49% with 0.7 in points and fees. A year ago this time, the rate was 4.35%. Sam Khater, Freddie Mac’s Chief Economist said, “These low rates combined with high consumer confidence continue to drive home sales upward, a trend that is likely to endure as we enter spring.”

Stocks are plunging once again with extreme volatility. The S&P 500 is at 3,056 and off the session low of 3,007 down 9% from its all-time closing high of 3,386 hit just last week. A correction would be 10% from its high which was hit this morning before the bounce higher. It is clearly in an oversold situation and ripe for a bounce but given the fears and uncertainty of the coronavirus, there is no way to handicap what happens next. If the S&P closes below 3,045, it will likely usher in more selling. The fear index, the VIX, has shot higher to 32 … the higher the number the more fear in the equity markets.

Sales of new single-family homes surged in January as low rates and a solid labor market supports the sector. January New Home Sales rose nearly 8% from December to an annual rate of 764,000, the highest since July 2007, above the 720,000 expected while December was revised higher to 708,000 from 694,000. Sales surged 30% in the Midwest, up 23.5% in the West, up 4.8% in the Northeast while the South saw a 4.4% decline. Sales were up nearly 19% from January 2019. The median sales price hit a record $348,200 in January, up 14% from January 2019. Inventories inched lower to a 5.1 month supply from 5.5% in December. Overall, a solid report.

The ongoing low supply of homes on the market for sale is leading to extreme competition among homebuyers, reports real estate brokerage Redfin. Redfin says that competition is surging early in 2020, and agents are reporting an inundation of buyers as housing inventories are at the lowest point in seven years, leading to a severe housing shortage in many areas. “Low mortgage rates have brought buyers back to the housing market, but a lack of listings means buyers are having to compete with one another to secure a sale and lock in a mortgage rate,” said Redfin chief economist Daryl Fairweather. “This competition pushes up prices, which means that even though buyers can get a good deal on a mortgage now they are often paying a higher sticker price.”

The number of virus cases reached 80,000 with 2,700 deaths. South Korea’s count is around 1,250 with 350 confirmed cases in Italy. In addition, the virus has spread to the Middle East with Iran reporting the highest number of deaths outside China. And like China, it is tough to understand if there are accurate numbers out of Iran. This virus has prompted the World Health Organization to put the coronavirus at its highest alert level but stopped short of calling it a worldwide pandemic, yet.

U.S. home prices rose at a solid pace in December as rates remained low while inventories continued to decline. The S&P Case-Shiller 20-City Home Price Index rose 2.9% annually in December, up from 2.5% in November, up 0.4% month over month from November to December. The National Index rose 3.8% in December from the 3.5% increase seen in November. At the end of January, there were 1.42 million homes on the market for sale, down 11% from a year ago.

The Conference Board reports that the Consumer Confidence Index improved slightly in February to 130.7 from 130.4 in January and below the 132.0 expected. Within the report it showed that the Present Situation Index, based on consumers’ assessment of current business and labor market conditions, declined while the Expectations Index, based on consumers’ short-term outlook for income, business and labor market conditions increased. Lynn Franco, Senior Director of Economic Indicators said, “Consumers’ short-term expectations improved, and when coupled with solid employment growth, should be enough to continue to support spending and economic growth in the near term.”

On the coronavirus front, China’s case count continues to grow, but at a slower rate while South Korea and Italy’s count has increased though no deaths were reported overnight. The country that is being watched closely with the virus is Iran, which has few border patrols, sketchy leadership, a fledgling economy and a weak health system. The coronavirus issues will continue to cast a cloud of uncertainty and will impact the U.S. financial markets until it’s resolution, which at the moment, doesn’t appear to be right around the corner. On the better news front, a report from CNBC this morning showed that more Chinese provinces are lowering their health-alert levels.

Global stock markets plunged overnight while stocks here in the U.S. are sharply lower as coronavirus cases outside of China accelerate. The Dow Jones Industrial Average is down 800 points (a 200 point improvement) as investors look to get out while they still have profits with the major averages just below all-time highs. Increased uncertainty and fears of a global economic slowdown due to the virus is casting a cloud over worldwide equity markets with fears of a pandemic overtaking the globe. However, Warren Buffet told CNBC this morning that he won’t be selling today, but buying if he sees opportunities. The smart money buys when there is “blood in the street,” a quote from Baron Rothschild.

There are no economic reports due for release today but the rest of the week’s calendar is full of key data that covers a broad spectrum of the U.S. economy. The markets will receive data from from housing, consumer attitudes, manufacturing, economic growth and consumer spending. In addition, the Fed’s key measure of inflation, the annual Core PCE, will also be released as it continues to hover below the Fed’s target range of 2%, currently at 1.6%.